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Polar Vortex & Bomb Cyclone’s Effect On Energy Procurement

The EIA just released the largest natural gas withdrawal in history. In the week ending January 5, 359 Bcf of natural gas was withdrawn from storage. Not only did this historic withdrawal dwarf the old record of 288 Bcf set during the Polar Vortex of 2014, it measurably exceeded the most bullish estimate of 345 Bcf. Natural gas inventories now stand at 2.767 Tcf which compares to 3.182 Tcf last year and the 5 year average of 3.149 Tcf. Despite this extremely bullish withdrawal and a measurable increase in the supply deficit compared to the 5 year average, the market is struggling to build a base over $3.00. Something has to give.

On the power side, the frigid weather has created measurable volatility in the day ahead markets and those on indexed unhedged contracts will feel it when they receive their upcoming utility bills. However, the steps most ISOs have taken following the Polar Vortexes of 2014 & 2015 has somewhat muted the volatility so in most cases the pain will be less severe but there will be some pain for those that didn’t hedge.

As a student of the markets for over 30 years, I am scratching my head as I watch natural gas struggle to hold on to a 3 handle when I feel it should be pushing toward a 4 handle. As I mentioned in our prior articles, supply/demand fundamentals have undeniably turned bullish for the intermediate & long term, combined with the short term weather related demand spike I am looking for higher prices. Yes the growth in production has caught many of us by surprise; it will take a stronger pricing environment to sustain further production growth.

Since there is a lot of winter ahead of us, it’s not too late to address and adjust a flawed energy procurement strategy.

Don’t wait to be floored by your next bill. Call NJGEC today at 973-287-7797 for a complimentary energy analysis and let us ensure you are protected against future spikes.